HOW TO FINANCE PUBLIC SCHOOLS WITHOUT MONEY

Richard G. SalmonProfessor

Virginia Tech

HOW TO FINANCE PUBLIC SCHOOLS WITHOUT MONEY

Richard G. SalmonProfessor

Virginia Tech

I know that you are keenly interested in how this might beaccomplished, but I thought I could maintain your interest,

if I save this technique for last.

REVIEW OF THE VIRGINIA SYSTEM OF SCHOOL FINANCE

IT IS TRIPARTITE FISCAL ARRANGEMENT, THAT VARIES FROM 49.9% FROM THE LOCALITIES, TO 34.9% FROM THE STATE, 8.7% FROM THE STATE

SALES TAX, TO 6.5% FROM THE FEDERAL GOVERNMENT (FY 2008 AND PRIOR TO THE FEDERAL

STIMULUS APPROPRIATIONS).

GOVERNMENTAL FUNDING RELATIONSHIP

• Federal Nationally, the federal government provides8.8 percent of total revenue, FY 2009 However, the percent of revenue varies from 16.1 percent for Mississippi to 3.0 percent for Rhode Island.

• State Nationally, the state governments provide 48.1 percent of revenue, FY 2009. However, the percent of revenue varies from 88.8 percent for Hawaii to 26.4 percent for Illinois.

• Local & Others Nationally, the local governments provide 43.1 percent of revenue, FY 2009. However, the percent of revenue varies from 64.8 percent for Illinois to 15.9 percent for Minnesota.

INTEGROVERNMENTAL FUNDING RELATIONSHIP (Continued)

• Flat Grant A grant that provides a fixed amount of revenue on a per unit basis, e.g., $1,000 per pupil in ADM.

• Matching Grant A grant that requires a corresponding match in revenue, usually on a per unit basis, e.g., $1,000 state aid matched by $1,000 local revenue match.

• Equalization Grant A grant that provides a greater amount of revenue on a per unit basis to school divisions deemed to possess less fiscal capacity to provide educational services.

MEASURES OF FISCAL CAPACITY

• Wealth A true wealth measure, Valuation of Real Property, calculated on a per unit basis, e.g., Property Valuation per pupil in ADM, is the most often used, nationally, to determine the fiscal capacity of school

divisions.

• Index of Fiscal Ability Multiple measures of

taxpaying ability, wealth,economic activity, etc., are mathematicallycombined. Virginia uses such an index,entitled, the Local Composite Index.

Traditional (TYPICAL) Fiscal Equalization Formula

A - B = C

A = Cost of Program B = Local Required Effort C = State Aid

This program is often referred toAs a Strayer-Haig formula or as aMinimum Foundation Program.

THE LOCAL COMPOSITE INDEX

Local School Division True ValuationAverage Daily Membership

State True ValuationAverage Daily Membership

Local School Division Adjusted IncomeAverage Daily Membership

State Adjusted IncomeAverage Daily Membership

5 x 4x

Local Taxable Retail SalesAverage Daily Membership

State Taxable Retail SalesAverage Daily Membership

1x

Local School Division True ValuationPopulation

State True ValuationPopulation

Local School Division Adjusted IncomePopulation

State Adjusted IncomePopulation

Local Taxable Retail SalesPopulation

State Taxable Retail SalesPopulation

5x 4x 1x

ADM Component

Population Component

.6667 x ADM Component + .3333 x Population Component X .45

Virginia Basic State AidFormula

Step1.________ Average Daily Membership2.________ SOQ Per ADM3.________ Total Cost Basic Aid (1 x 2)4.________ 1.125¢ Sales Tax Receipts5.________ Total Cost Minus Sales Tax (3 – 4)6.________ Local Composite Index7.________ Local Required Expenditures (5 x 6)8.________ Basic State Aid (5 – 7)

WHAT HAS CAUSED THE FISCAL CRISIS THAT NOW CONFRONTSPUBLIC K-12 SCHOOL IN THE COMMONWEALTH OF VIRGINIA?

I AM NOT HERE TO CASTE BLAME ON ANYONE, BUT I CANNOT HELP NOTICE THAT A SUBSTANTIAL PART OF THE CURRENTSTATE BUDGET PROBLEM IS DUE TO THE FISCAL DECISIONS MADEBY PREVIOUS ADMINISTATIONS AND GENERAL ASSEMBILIES.

SETTING LONGTERM TAX POLICIES THAT ARE BASED ON HIGHLYENERGIZED NATIONAL AND STATE ECONOMIES INEVITABLY WILL FORCE REEXAMINATION OF THESE POLICIES DURING THE MOSTDIFFICULT TIMES. THE MOST OBVIOUS EXAMPLE IS THE SO-CALLED“CAR TAX” THAT BIENNIALLY FORCES THE TRANSFER OF $2 BILLION STATE REVENUE TO THE LOCALITIES. THE TRANSFER OF THESE“REPLACEMENT REVENUES” NEEDS TO BE PHASED-OUT, PERHAPS OVER TWO OR THREE BIENNIA. OBVIOUSLY, THIS WILL BE A PAINFUL PROCESS, BOTH FOR THE COMMONWEALTH AND FOR THE LOCALITIES.I MIGHT ADD, THAT THIS PROGRAM WAS NOT THE BRAINCHILD OF THELOCAL GOVERNMENTS.

MAGNITUDE OF THE IMPENDING FISCAL DISASTERFACING PUBLIC K-12 SCHOOLS

IN MY NEARLY FIFTY YEARS IN PUBLIC SCHOOLS, BOTH K-12 ANDHIGHER EDUCATION, I DO NOT REMEMBER A FISCAL CRISIS SUCHAS THE ONE WE ARE CURRENTLY FACING. I THINK THE PUBLIC ISJUST BECOMING AWARE OF HOW SEVERE THE CRISIS IS BECOMING.FROM ALL STATISTICAL REPORTS, THE GREAT DEPRESSION WAS MUCH WORSE, BUT THIS ONE IS BAD ENOUGH FOR ME.

THE GENERAL ASSEMBLY AND GOVERNOR, BOTH PAST AND PRESENT,HAVE ALREADY MADE DACONIAN REDUCTIONS AND IF REVENUE ENHANCEMENTS (TAXES) ARE NOT IMPLEMENTED, GOVERNMENTAL SERVICES WILL BECOME MUCH WORSE. INCLUDED IN GOVERNMENTALSERVICES IS, OF COURSE, PUBLIC SCHOOLS.

I THINK PART OF THE PROBLEM IS THE MAGNITUDE OF THE PROBLEM ITSELF. OUR SOCIETY HAS BECOME DESENSITIZED TO FISCAL TERM-INOLOGY. WE REGULARLY USE TERMS SUCH AS MILLIONS, BILLIONS, AND TRILLIONS SO THAT THEY LOSE MEANING.

A REAL EXAMPLE

LET US LOOK AS THE FISCAL EFFECT ON A CHILD ATTENDINGA PUBLIC SCHOOL AND THE CLASSROOM THAT HE OR SHE ATTENDS.IF THE RECOMMENDED REDUCTIONS ( FYS 2009-2011)ARE MADE, ON A STATEWIDE BASIS, EACH CHILD WILL SEE $607 IN STATE AIDDISAPPEAR. (THIS DOES NOT ADDRESS LOSS OF LOCAL AID OR THE POTENTIAL LOSS IN FEDERAL FUNDS).

IF YOU ASSUME VIRGINIA FUNDS ON THE BASIS OF 20:1 (PUPIL-TEACHERRATIO), THE LOSS FOR EACH CLASSROOM IS $12,140. THAT IS $12,140FOR EACH CLASSROOM IN EACH SCHOOL BUILDING THOUGHOUT THECOMMONWEALTH. IF YOU ASSUME THAT A CHILD WILL ATTEND PUBLICSCHOOL FOR 13 YEARS, I.E., K-12, EACH CHILD WILL LOSE NEARLY$158,000 DURING THEIR PUBLIC SCHOOLING.

HOW TO FUND PUBLIC SCHOOLSWITHOUT MONEY

•The most obvious solution is to eliminate personnel. Most school divisions will attempt to reduce personnel other than teachers, but inevitably, classroom teachers will join the ranks of the unemployed.

•The loss of teachers not only affects pupil-teacher ratio (a debate of its effectiveness that has continued for many generations), but the loss of teachers directly affects the breath of the curriculum. The classes that traditionally have drawn small pupil teacher ratios.

•School divisions have reduced numbers of administrators, teacher aides, support personnel of all types, all which provide the high quality education that Virginia has relied.

•Replacement stock, computers, rolling stock, i.e., automobiles, trucks, vans, and school buses are being placed on deferred status.

•Energy audits are being conducted by a number of school divisions and usually on the short term, show promise.

•Cooperative services should be investigated, and in some instances, they are cost efficient. However, the personnel differences that exist between schools and other public agencies generally marginalize cost savings.

•Privatization of services are effective occasionally, but complaints and issues concerning personnel turnover, quality of services, often distract from perceived success.

There is no way!!